Next Digital: The pure play pay off

Arthur Spanos will not have his photo taken and he has little time for marketing but it hasn’t stopped him building a successful digital marketing business and selling it off for $20 million, EMILY ROSS reports.

By Emily Ross

Arthur Spanos will not have his photo taken and he has little time for marketing but it hasn’t stopped him building a successful digital marketing business and selling it off for $20 million.

In 1996, Arthur Spanos and Bradley Stiles started their digital marketing and services business Web Design Group (now known as Next Digital) at a time when digital marketing services were just an add-on to marketing businesses.

But a pure digital play has proven to be a smart move despite early struggles to pitch the marketing potential of the internet. Web Design Group’s first big break was winning the contract to build Australia Post’s website in 1998.

Starting with working capital of just $15,000, Next Digital has become Australia’s largest independent digital agency with more than 200 staff, with clients in 25 countries including Ford, Australia Post, ANZ and Jetstar. It has three Australian offices and branches in Shanghai and Bangkok.

For the past five years, Next Digital’s annual growth rates have been more than 50%, boosted by creating digital campaigns such as Telstra HeroMessages and Ford Backyard Cricket. In 2007, turnover reached an estimated $20 million.

Next Digital has 140 active clients and 220 projects on the boil including the launch of Jetstar’s new websites.

The company has expanded into five different business divisions with a focus on services that increase customer reach, online acquisition, building digital presence, analytics and reporting.

Growth has been funded through cashflow. Spanos, a first generation Australian, grew up working in his parents’ milk bar. “You can’t go broke if you don’t owe anybody any money,” he says.

In 2000, Spanos sold a 40% stake in the business to John Singleton’s STW Communications Group and a further 9% in 2002, the year Stiles left the business. The STW deal did not last. Spanos and Next Digital’s technical director Karl Kopp bought back the shares in 2006 in an amicable buyback. (Spanos 67%: Kopp 33%.)

Spanos was keen to expand the business into Asia, STW preferred a more domestic focus. His mindset of expansion continues. “We want to make the business significantly larger,” says Spanos. “We want to open up, expand our customer base and increase total volume of work.”

Spanos is a strong believer in the theory that it is actually easier to run a larger business than a small one. A larger business means less time spent on petty details, a bigger team to manage projects and more time for Spanos to spend on his favorite part of the business – sales. “When it is small, you have to do far more of everything,” he says. Although he is a stickler for turning off lights, straightening office chairs and picking up rubbish around the office, however many staff he has.

Spanos has had a steady stream of offers for the business. In December 2007, marketing services company CommQuest paid $20 million for Next Digital in a cash and share deal.

It took four months for the parties to start the deal process. “We kept missing each other,” says CommQuest chief executive William Scott. However once their diaries clicked, things accelerated. Less than a month after talks began, the parties were dining at the ritzy Meat and Wine Co at Melbourne’s Freshwater Place, toasting the deal.

According to Scott it wasn’t a big night on the turps. It was almost an anticlimax. “Because it’s not the end of the journey, it is the start,” he says. “You are not selling out; it is a cash and shares deal where you are getting in.”

Next Digital is now part of CommQuest’s suite of marketing companies. CommQuest only listed last November and has a market value of $44 million; shares were trading recently at 62 cents, half its peak price of $1.22, before the market correction this month.

During the due diligence process, Spanos’s mania for business plans, profit and loss and EBIT paid off. “There was a real emphasis on EBIT,” says Scott. “And Arthur can tell you at 2pm whether they are ahead or below.”

The screening process also included a technical and software audit (to ensure compatibility and quick integration). It was all very nuts and bolts, the way Scott likes it. “There is nothing more off-putting than arrogant entrepreneurs who only want to talk about the brand and devalue the actual finances and business plan,” he says.

Post-acquisition, Spanos continues to lead Next Digital, with CommQuest providing back-end support. “The last thing we want to do is interfere,” says Scott. “We are adding a bit of horsepower and liquidity to their plans.”

The business has 20 job vacancies and Spanos knows exactly what he wants in an employee. Spanos loves graduates with a track record of working hard, holding down jobs during their study years so the transition to the workplace is not so tough.

Now Spanos can offer graduates a career rather than just a job, posts overseas and major projects. Spanos needs the manpower to reach those targets so he has to look for great work ethics in his recruits. “Some people work hard and some people don’t,” he says.

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